Historically, economists have taken the position that psychological capital is either unobservable or unmeasurable; thus, heretofore, little evidence has been available on the contribution of psychological capital to wages. Using data drawn from two dgferent waves of the National Longitudinal Survey of Youth, we offer evidence that psychological capital has both a direct effect-via self-esteemAnd an indirect effect-through locus of control-on an individual k real wage. We find a person 5 wage is more sensitive to changes in self-esteem than to comparable alterations in human capital. Both relative wages and human capital contribute to self-esteem. (JEL E24, 56)

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A major concern for labor economists has been to understand how wages, employment and productivity respond to variations in predetermined factors such as tastes for leisure and endowments of human capital. The starting point for their analysis has tended to emphasize choice rather than the circumstances that dictate the range of perceived options. In contrast, social psychologists have tended to have a greater interest in understanding the factors that economists customarily treat as predetermined in affecting aggregate outcomes in labor markets. When they direct their attention to subjects within the sphere of interest of labor economists, they ask about the roles of motivation, personality, cognitive ability and early childhood socialization in the formation of attitudes toward work and task performance. They seek to comprehend the processes leading to action, as well as the consequences of such action.The tension between the two approaches is reflected in Simon's (1986) important distinction between "the substantive view of human rationality" common to neoclassical microeconomics and "the procedural view of human rationality" common to psychology. We are convinced that a synthetic approach that combines elements of substantive human rationality with the real-time, procedural view of human rationality can improve our understanding of such phenomena as aggregate unemployment and aggregate productivity.Consider, for instance, a macroeconomic shock that unexpectedly exposes individuals to unemployment.

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